Financial Transactions and Regulatory Compliance Review

Four Key Trends in Investor Relations

For decades, investor relations (IR) was a pretty straightforward proposition. Public companies would tabulate their financials and then distribute them to investors and regulators. While the basic principles are still the same, IR has evolved to reflect the importance of digital communications, changing corporate structures, increased regulations and disclosure requirements, among other trends.

Here are some of the major developments that are affecting the investor relations field today:

Evolving Needs

Back in the 1950s, IR was focused on sending financial information to existing shareholders to build trust and credibility. Today it has become a far more important – and sophisticated – function that can have a significant effect on a company’s ability to succeed and meet investors’ demands. Until the 1980s, most public companies simply tabulated their quarterly and annual results and sent them to a few investors and (usually) TheWall Street Journal. By the end of the decade reports were being faxed to large groups of investors and analysts, and the quarterly earnings call became a staple of many companies’ IR strategies. Today, the entire field is a lot more sophisticated and contemporary investor relations departments need to be prepared to solve tomorrow’s challenges, not yesterday’s.

New Technologies

Technology has changed the entire business world, so it’s no surprise that IR continues to evolve as new tools become available. Thirty years ago fax machines changed IR because companies no longer had to staff phone banks with people who read reports verbatim to callers (seriously!). Email simplified the process of distributing financial reports and made it possible to connect with much larger audiences. Innovations like EDGAR have also revolutionized the field. Despite these changes, however, printed reports are still the gold standard for top companies and are a major component of most IR efforts.

Sarbanes-Oxley

According to the Institute for Public Relations, the three main eras in the history of investor relations are the communication era (1945-1970), the financial era (1970-2000), and the synergy era (after 2000).This current chapter is based on companies providing, “positive and negative information… the goal is not high value of stock, but fair value of stock.”

One of the hallmarks of this era is the Sarbanes-Oxley Act of 2002. Sarbanes-Oxley (commonly known as SOX) changed everything when it came to disclosure, and it’s had a ripple effect across the IR profession. Public companies now need to disclose all financial data at the same time to all audiences to prevent investors from getting an unfair advantage. This has resulted in IR departments needing to synchronize their disclosures and put processes in place to ensure that information isn’t improperly released.

24-Hour/Online Media

Let’s face it – following stocks is a full-time endeavor. Back in the day, the only people who really followed the tiny print in Dow Jones were investors tracking and planning their investments. Today there are entire television networks that do nothing but analyze and rate companies based on reports coming from internal and external sources. Mix in thousands of stock-focused websites, business sections and social media outlets, and you have an insatiable appetite for information.

A perfect example of this was in 2008 when Apple stock fell precipitously because CEO Steve Jobs appeared gaunt at a public event, raising concerns about his health. Savvy companies know that they need to get ahead of the tidal wave of coverage rather than wait to react to questions and concerns. A big part of making this strategy successful is to have IR teams work closely with public relations teams and other marketing groups to anticipate possible areas of concern and develop response strategies.

Specific Skills

IR may have started out as a fairly cut-and-dried way to inform shareholders, but it’s become a far more sophisticated activity over the last few decades. That’s why companies are hiring people with deep subject matter expertise, not just general communications backgrounds, into their investor relations departments. As a result, people with accounting, legal and banking backgrounds are increasingly finding their way into IR roles. It’s important for human resources teams to work closely with IR managers to help recruit candidates who will meet their needs now and in the future.

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